Subsidiary Books - Part 2
"Returns and bills - handling the reverse flow and credit instruments."
After learning Purchases and Sales Books, we now cover books for goods returned and bills of exchange.
Books Covered in This Lesson
1. Purchases Returns Book (Returns Outward Book)
Purpose: Record goods returned TO suppliers (credit purchases returned).
What to Record:
- ✓ Credit purchases returned
- ✗ Cash purchases returned (in Cash Book)
- ✗ Sales returns (different book)
Format
Date | Supplier Name | Debit Note No. | L.F. | Amount (₹)
-----|--------------|----------------|------|----------
Jan 5| Ram & Co. | DN-101 | | 5,000
Jan 8| ABC Ltd. | DN-102 | | 8,000
Jan15| Mohan Traders| DN-103 | | 3,000
-----|--------------|----------------|------|----------
| Total | | | 16,000
Posting to Ledger
Individual Posting:
- Debit each supplier's account (reduces liability)
Periodic Total Posting:
- At month-end: Credit Purchases Returns Account with total
Example Ledger Entries:
Ram & Co. Account
Dr. Ram & Co. A/c Cr.
------------------------------------------------------------
Jan 5 | By Purchases Returns | 5,000 |
Purchases Returns Account
Dr. Purchases Returns A/c Cr.
------------------------------------------------------------
| | Jan 31 | By Sundry Creditors | 16,000
(Total from Purchases Returns Book)
2. Sales Returns Book (Returns Inward Book)
Purpose: Record goods returned BY customers (credit sales returned).
What to Record:
- ✓ Credit sales returned
- ✗ Cash sales returned (in Cash Book)
- ✗ Purchases returns (different book)
Format
Date | Customer Name | Credit Note No. | L.F. | Amount (₹)
-----|------------------|-----------------|------|----------
Feb 3| Sharma Stores | CN-201 | | 6,000
Feb 7| Gupta Enterprises| CN-202 | | 12,000
Feb10| City Mall | CN-203 | | 4,000
-----|------------------|-----------------|------|----------
| Total | | | 22,000
Posting to Ledger
Individual Posting:
- Credit each customer's account (reduces asset/receivable)
Periodic Total Posting:
- At month-end: Debit Sales Returns Account with total
Comparison: Purchases vs Sales Returns
| Basis | Purchases Returns | Sales Returns |
|---|---|---|
| Other Name | Returns Outward | Returns Inward |
| Direction | We return goods to supplier | Customer returns goods to us |
| Document | Debit Note issued to supplier | Credit Note issued to customer |
| Individual Posting | Debit Supplier's A/c | Credit Customer's A/c |
| Total Posting | Credit Purchases Returns A/c | Debit Sales Returns A/c |
| Effect | Reduces our liability | Reduces our asset |
3. Bills Receivable Book
Purpose: Record bills accepted BY customers (we will receive money).
What is a Bill Receivable?
- A bill of exchange where the customer (debtor) accepts to pay us
- It's an asset for us (right to receive money)
Format
Date | From Whom Received | For What | Due Date | L.F. | Amount (₹)
-----|-------------------|-----------|-----------|------|----------
Mar 2| Ramesh | Goods sold| 2nd May | | 50,000
Mar 8| Suresh | Old debt | 8th June | | 30,000
-----|-------------------|-----------|-----------|------|----------
| Total | | | | 80,000
Posting to Ledger
Individual Posting:
- Credit the respective debtor's account (liability settled)
Periodic Total Posting:
- Debit Bills Receivable Account with total
4. Bills Payable Book
Purpose: Record bills we accepted TO creditors (we will pay money).
What is a Bill Payable?
- A bill of exchange where we (the debtor) accept to pay the creditor
- It's a liability for us (obligation to pay)
Format
Date | To Whom Given | For What | Due Date | L.F. | Amount (₹)
-----|---------------|--------------|-----------|------|----------
Apr 3| Mohan & Co. | Goods bought | 3rd July | | 40,000
Apr10| XYZ Suppliers | Old dues | 10th Aug | | 25,000
-----|---------------|--------------|-----------|------|----------
| Total | | | | 65,000
Posting to Ledger
Individual Posting:
- Debit the respective creditor's account (liability reduced)
Periodic Total Posting:
- Credit Bills Payable Account with total
Real-World Case Study
📋 Case Study: D-Mart's Returns Management System
Transaction Flow Timeline
⏳ Chronology of Events
Goods Purchased
Purchased goods worth ₹1,00,000 from ABC Ltd on credit. Recorded in Purchases Book.
Goods Returned
Found defective items worth ₹10,000. Issued Debit Note DN-101 to ABC Ltd. Recorded in Purchases Returns Book.
Bill Accepted
Accepted bill of ₹90,000 payable in 60 days. Recorded in Bills Payable Book.
Bill Honored
Paid ₹90,000 on due date. Recorded in Cash Book.
Summary of All Subsidiary Books
Complete List:
- Purchases Book → Credit purchases of goods
- Sales Book → Credit sales of goods
- Purchases Returns Book → Goods returned to suppliers
- Sales Returns Book → Goods returned by customers
- Bills Receivable Book → Bills accepted by debtors
- Bills Payable Book → Bills we accepted to creditors
- Cash Book → All cash & bank transactions
- Journal Proper → All other transactions
Each serves a specific purpose, saving time and reducing errors!
Common Exam Questions
Q: Where is cash purchase return recorded?
A: Cash Book (credit side), NOT Purchases Returns Book.
Q: What document is issued for purchases returns?
A: Debit Note (to the supplier).
Q: Bills Receivable is an asset or liability?
A: Asset (we will receive money).
Quiz: Subsidiary Books Part 2
Test Your Knowledge
Question 1 of 5
1. Purchases Returns Book records: